The Trump administration announced this morning that it was potentially adding a 5% tariff on numerous Mexican imports. Beyond these tariffs, this has investors concerned it could derail the new and ‘improved’ NAFTA deal and lead to a broader trade war. Stocks sold off immediately on the news and all this tariff talk has pushed the indices down approximately 6% in May. This was the second worst May in the last 50 years and the worst month since November. For the week the Dow declined 3.0% while the S&P 500 decreased 2.6%.
I’ve written numerous times over the past year my general objection to tariffs. I believe in global trade and believe that free global trade is the best path to prosperity for the greatest number of people. Tariffs add friction into the marketplace and drive prices higher for consumers. Trade works when one company, state or country has an ability to produce a better and/or a cheaper product. This allows other groups, companies and countries to produce what they can most effectively produce. Then consumers benefit from higher quality products and lower prices. Adding tariffs protects ineffecient producers, raising costs for the entire system. I understand Trump is trying to force political change with an economic hammer, but from my point of view, the United States should always push for more free trade, not less.
For the second consecutive week, oil had its worst week of 2019. After declining 6.1% last week, it declined another 9.7% this week to close at $53.22/barrel. The yield on the 10-yr Treasury moved sharply lower, closing at 2.13% from 2.33% last week. The average rate on a 30-yr fixed rate mortgage moved lower, to 3.99% from 4.06% a week ago. This is the first time since January 2018 that rates dipped below 4% and with the sharp drop in Treasury yields this week, mortgage rates are likely heading even lower. If you’ve missed previous windows to refinance a higher interest rate mortgage, now could be a great time. If you need help deciding whether a refinancing could benefit you, let me know and I can run the analysis for you.